Free emailer files for IPO

USA.net provides both Web-based email service to consumers and also corporate email outsourcing. On the consumer side, the company has its own free email site called NetAddress and powers the free email Web services of American Express and Netscape Communications' Netcenter portal.

Of the Web-based email providers, USA.net is the first to take its business public. Competitors Hotmail and Rocketmail were acquired by Microsoft and Yahoo, respectively.

On the commercial email outsourcing side of the business, USA.net's PostOffice.net competes directly with Critical Path, which recently had a spectacular IPO.

USA.net's Securities and Exchange Commission filing showed revenues growing by leaps and bounds, though they were dwarfed by losses.

The company's revenue last year was $4.7 million, up from $782,000 in 1997. Losses from continuing operations for 1998 were $19.2 million, or $35.75 per share, up from $5.7 million, or $10.68 per share, in 1997.

USA.net's subscriber rolls show impressive growth. Its user base more than doubled to 5.7 million in 1998 from 2.5 million in 1997. The smaller group of business users grew even faster, to 217,000 in 1998 from 44,000 in 1997. The Web portal business produced 1.7 million users.

Analysts said USA.net's email outsourcing business stood a better chance of turning a profit than the Web-based email business.

"Based on our research on Web communities and community tools and services, a standalone email site as a destination is not much of a business," said Jupiter Communications analyst Anya Sacharow. "Consumers don't have an overwhelming desire for standalone communications tools."

Sacharow cited her firm's statistics showing that about 22 percent of Net users said they used Web based email regularly, and 10 percent wanted to see it included on their favorite sites.

"There's not an overwhelming demand for the product," Sacharow said. "And people are getting it already through Yahoo and Hotmail, or through their ISP."

Hotmail claims more than 30 million registered users. Yahoo does not disclose its numbers.

Sacharow said USA.net's best prospects lay in being acquired by another firm, following Hotmail and Rocketmail.

Other analysts, however, pointed to the email outsourcing side of USA.net's business and the success of the Critical Path IPO and predicted USA.net would do well.

"The space is certainly growing, and USA.net is a dominant player in outsourced email," said Yankee Group senior analyst Steve Robins. "To a certain extent it's a volume game, to the extent that increasing the number of small businesses having USA.net hosting their email increases volume. Having certain types of value-added email increases their revenues."

Still, Robins sounded a note of caution about the company's fundamentals.

"I wouldn't even want to guess when they're going to break even," he said.

USA.net said it planned to raise $100 million and use the proceeds toward sales and marketing, personnel, capital expenditures, product development, paying down debt, and other general purposes.

The stock will trade on the Nasdaq under the symbol "MBOX."

Bear, Stearns is the lead underwriter for the IPO; Volpe Brown Whelan and CIBC World Markets are also underwriting it.